Friday Economic Snapshot: Americans drop debt

Sometimes the stock market’s undulations make sense, and other days one gets the impression the stock-picking monkeys you hear about have stormed the New York Stock Exchange taken over.

Sure it’s a little dramatic, but the stock market has had a tough week (DJIA down triple digits two days in a row), yet the week’s economic indicators are roundly positive. Why the hysteria? Wal-Mart and Cisco Systems lowered their earnings forecasts, and economists are hyperventilating once again at talk that the Federal Reserve may be winding down its asset purchases sooner rather than later.

At some point the Fed will need to face the music by reducing its asset-purchase stimulus, so eventually this reality will be priced into the stock market and life will go on. What that means — specifically how many triple-digit drops this will require — is a matter of significant consternation in the business world.

Backing away from doomsday, we’ve got some excellent economic news in this week that you should know about.

Household Debt

In good news from the NY Fed, “outstanding household debt declined by $78 billion from the previous quarter, due in large part to a decline in housing-related debt.” Automotive loan balances increased $20 billion from the previous quarter — the ninth consecutive quarterly increase and the largest quarter-over-quarter increase since 2006 — the downside to those red-hot car sales.

While it’s mixed news, the overall result of less household debt is a good thing, as long as consumers aren’t getting too tight with their wallets. Consumers less burdened by credit card, mortgage and car payments are better able to set aside some money and to make quality-of-life upgrades, like a shiny new boat.

Builder Confidence

The National Association of Home Builders reports that homebuilder confidence rose three points in August, the fourth consecutive monthly gain that brought the index to its highest level in almost eight years.

Newly built and single-family homes rose three points, to 59, on the index. Builders reported seeing more motivated buyers than they’ve seen in a while. They see current sales conditions as still improving, with optimistic gut-feelings for the next six months.

In other housing news, the FNC Residential Price Index shows that home prices increased 3.7 percent year-over-year in June. Some of the leading cities were San Francisco, Los Angeles, Miami, Chicago, Minneapolis, Seattle and Washington D.C.

As stated almost weekly in the Friday Economic Snapshot, the housing industry is powering most of the current economic recovery, yet there are growing worries that we’re approaching bubble territory.

Unemployment Claims

We can’t ignore good news on the unemployment front, even if it’s not a drastic change from the recent trajectory. As reported by the Department of Labor, “in the week ending August 10, the advance figure for seasonally adjusted initial claims was 320,000, a degrease of 15,000 from the previous week’s revised figure of 335,000.”

This puts our four-week moving average at 332,000, yet another decrease from the previous week’s average of 336,000.

If only our unemployment data showed dramatic increases of hiring, we’d really be getting somewhere. This week’s numbers are positive news, but we’re still not seeing enough good paying jobs created to make a real difference. The wait continues…

Takeaway

Inflation is low, builder confidence is high, industrial production is staying strong throughout the summer, unemployment claims keep heading down, household debt continues to improve and, a real laggard in the recovery, commercial real estate prices have begun to surge, suggesting a possibly uptick in future commercial construction that could diversify our housing-led recovery in construction.

But the stock market is having none of it, as it throws a temper tantrum whenever the Fed is accused of tapering. It’s going to happen eventually, logic would suggest, so this isn’t something for individual investors or small business owners to stress out about at the moment — unless the bottom really starts to fall.

Some economists are proffering predictions of a 1987-style market crash, but there are always dire predictions hanging around in the shadows. For the time being, fundamentals continue to improve — but keep an eye on those leaping home prices. Nobody gets a “we didn’t see it coming” this time around.

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